Not out of
the woods yet

Tainted by suspicions of bribery, the Holyland housing project is now beset by planning delays and financial headaches.

Most real estate companies are having enough trouble with the slowdown in deal flow - but Holyland Park has another whole set of difficulties with its Jerusalem housing project. Media reports in April 2010 about suspicions of corrupt practices in obtaining building permits for the first part of the controversial project have led to delays in building permits for the rest of the works.

Holyland Park is controlled by the Kardan group (30% ), Polar Real Estate (30% ) and Bank Leumi (10% ). It is the company behind the hilltop Holyland project that many feel is a blight on the Jerusalem skyline. Holyland Park is busily battling the planning authorities, which are demanding profound changes to the plan and are therefore holding up further permits.

Holyland Park owns most of the land on which the project is rising. Another part of the land belongs to retail baron Rami Levi, who bought his portion a year and a half ago for NIS 146 million. Both Holyland Park and Levi have a keen interest in the project's progress and so both sent representatives to a discussion with the Jerusalem planning authorities two weeks ago, to present their views. Levi and Holyland Park's controlling shareholders both complained of the financial damage the holdups are causing them, which they claim total hundreds of millions of shekels. Levi even said the delays could push Sapphire & Barkat Real Estate, the company through which he invested in Holyland Park, into bankruptcy. His share of the land is zoned for the construction of 264 apartments and 1,600 square meters of commercial space.

The Holyland project spans 162 dunams (just over 40 acres ) in southwest Jerusalem, near the neighborhoods of Ramat Sharett and Beit V'Gan. Construction on the hill was approved in 1990, mainly of buildings to serve tourism. Between 1998 to 2005, four more plans were approved for the site by the Jerusalem and higher district planning committees. Construction of 17 residential high-rises, two with 31 stories and the rest lower, with a total of 1,000 apartments were given the go-ahead. The construction of a hotel was also smiled upon.

To date only eight of the 17 planned towers have risen and roughly 450 apartments have been sold. Of those, 78 were sold since the media reports of suspected corruption at the site, which is a reasonable pace indicating the reports have not caused hurt. The issue at stake is the erection of the other nine towers.

Bribery allegations

In April 2010, the press reported on a police investigation into suspected bribery. The developers, led by Hillel Charney, allegedly paid city and planning officials to obtain approvals. The deputy attorney general, Sarit Dana, then wrote a letter to the chairwoman of the district planning committee, Ruth Yosef, urging the committee to revisit and amend the plans for the site.

In March 2011, the district planning committee received another letter from the deputy attorney general and the state prosecution, saying the police had wrapped up their investigation and there was a reasonable probability that some suspects would be convicted, including former Prime Minister Ehud Olmert, who at the time had been mayor of Jerusalem.

But while the investigation was pursued and its ramifications considered, the companies involved - Holyland Park, Rami Levi and others - have had to deal with the fallout.

"The fact that the final construction plan won approval by the planning committees just five and a half years ago attests that they studied the plan for the site and did not find reason to order the plan to be redone," said Avrum Porten, lawyer for Holyland Park, at a recent sitting of the district planning committee.

The committee had stated that its decision to require replanning - and meanwhile to withhold further building permits - had been based on planning grounds alone, Porten said, but it had held the discussion at the request of the Justice Ministry. Also, the committee made its decision after hearing the attorney general's representative, Porten added, and therefore it could not be said that the decision to require changes to the plans was independent of the investigation.

In other words, he said, the committee had to be suspected of extraneous considerations when deciding that the plan for Holyland needed revisiting.

What's the damage?

How badly are the companies hurting from the delays? Various companies' announcements to the Tel Aviv Stock Exchange indicate that in 2010 Holyland Park lost more than NIS 120 million. In the first quarter of 2011 it lost another NIS 60 million. The losses are mainly due to a drop in the value of the land, and the difficulties in obtaining building permits.

"The delays caused damage totaling tens of millions of shekels" to Holyland Park, says Porten. "Construction at the site stopped with the reports of a police investigation," he says. People are afraid to buy there because they're afraid they'll have to forfeit their new homes, he claims. Holyland Park deserves compensation, Porten argues, and it means to sue.

Rami Levi has similar claims. "I bought the land a year and a half ago for NIS 150 million. Only after the purchase was construction halted, for no reason. The planning authorities knew the site well a long time before the criminal investigation began." Therefore, it is not reasonable for them to reach the conclusion that planning had to be redone only after the police started sniffing, Levi says. The delays are causing the company through which he invested, together with another company called Nahor, losses of a million shekels a month, he claims. If the building suspension continues, Levi says, the companies that own the land could go bankrupt.

It is entirely possible that the hundreds of apartments planned for the site that haven't yet been built never will be. At least not as planned. The Jerusalem municipality also revisited its position and found that the master plan for the area approves a much smaller scope of construction.

Meanwhile, the district planning committee was shown a new plan for the Holyland site, at the recommendation of the Justice Ministry. The latest plan was the brainchild of architect Yaacov Yaar, an Israel Prize laureate (2007 ) whom the committee hired as a consultant. He proposes to narrow the construction considerably, replacing the towers with more moderate buildings and abolishing the stacked construction style characterizing the site. Also, Yaar proposes to expand the public areas and to try to forge ties with the neighboring communities through shared plazas and public buildings.